8 ms·

"Also, no, small traders don't lose. Retail traders et al get much tighter spreads, cheaper execution by routing to internalizers, etc." There's liquidity unti

"Also, no, small traders don't lose. Retail traders et al get much tighter spreads, cheaper execution by routing to internalizers, etc." There's liquidity until there isn't. It was easier to get an order filled during a run to the exit pre-HFT. When everyone runs to the exit in an HFT world, retail investors are the last to get their orders filled, if they're lucky.

tptacek 8y ago
I don't know if this is true, but higher liquidity and lower spreads reduces the cost of every trade, which is money in the pockets of retail and value investors. I assume this is why Vanguard says HFT has been helpful for them (despite the fact that they don't do HFT themselves).
- unclebucknasty 8y ago
  Aren't the cost of the trade and price of the trade two different things? Tighter spreads can only do so much to offset disadvantageous pricing, right?
  - qeternity 8y ago
    What difference are you making between tighter spreads and disadvantageous pricing?
  - JamesBarney 8y ago
    No, you cant. The spread is the difference between the bid and the ask. You can't have disadvantageous pricing without affecting the ask. Which would in term drive up the spread.
    - unclebucknasty 8y ago
      HFT helps tighten spreads for smaller investors, and also itself benefits from the tighter spreads. But, to the extent that you believe the argument that HFT is essentially front-running, then HFT gets the tight spreads and better pricing.
      - tptacek 8y ago
        People believe all sorts of weird things, but the actual offense of front-running involves an agency relation: it occurs when you work with a broker/dealer to order your securities, and upon receiving your order, they trade for their own account ahead of yours. Market makers aren't agents of traders.
        unclebucknasty 8y ago
        >the actual offense of front-running... Sure. That's why I wrote "essentially" front-running. Perhaps I should have written "effectively" to better clarify? In any case, I am referring less to the tort and more to the common complaint that people have about HFT: WRT how it disadvantages small investors. >People believe all sorts of weird things Indeed. But, I don't believe that to be an esoteric complaint. In fact, it seems to be one of the chief complaints where HFT is concerned.
        tptacek 8y ago
        I don't know if "esoteric" is the word. You're saying, lots of people seem to believe that the advantage fast electronic market making has over "conventional" trading is a form of front-running. That is true. But: it is not. Lots of people also believe that high-end market research (for instance, targeted research and maybe even electronic surveillance about how many widgets a company has sold) is a form of insider trading. But: it is not, even though lots of people say that, and for the same reason. In both cases, people believe there is something shady about people going to extraordinary lengths to obtain a trading advantage. And, in both cases, not only is the market resilient to those efforts to gain advantage, but the markets are theoretically improved by them. The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price for something, and to make it efficient for people to buy and sell at that price.
        unclebucknasty 8y ago
        I am aware that people believing a thing doesn't make it true. I am also aware of the arguments in favor of HFT. As you stated, the oft-made claim that the market is improved is theoretical as well; hence, is also a product of "belief". It's not a settled question. [0] >The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price Yes. [0] https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp https://www.investopedia.com/ask/answers/09/high-frequency-t...
physguy1123 8y ago
Manning rule dictates that retail orders held by a market maker must be filled before any other orders (or equally that fills must be given to the retail order), brokers don't look kindly on firms that reject customer orders with any regularity, and anyways retail flow on a volatile+wide spread symbol are loved by market makers.
- qeternity 8y ago
  This. Even in markets with last look, you will lose your flow if you dick about too much.
  - physguy1123 8y ago
    I know of certain firms that will never reject retail orders unless they're truly invalid and will just fill at a loss to keep their flow.
qeternity 8y ago
Yeah and the old DMM's used to stub quote when things got rough. Same shit, different day. Under most environments, HFT has been a net positive particularly in the single name options market. Pretty much every name out there is quoted with decent depth because an algo can now quote a few vols either side and make decent coin given that it costs nothing to stay laid up these days.

tptacek 8y ago

I don't know if this is true, but higher liquidity and lower spreads reduces the cost of every trade, which is money in the pockets of retail and value investors. I assume this is why Vanguard says HFT has been helpful for them (despite the fact that they don't do HFT themselves).

unclebucknasty 8y ago
Aren't the cost of the trade and price of the trade two different things? Tighter spreads can only do so much to offset disadvantageous pricing, right?
- qeternity 8y ago
  What difference are you making between tighter spreads and disadvantageous pricing?
- JamesBarney 8y ago
  No, you cant. The spread is the difference between the bid and the ask. You can't have disadvantageous pricing without affecting the ask. Which would in term drive up the spread.
  - unclebucknasty 8y ago
    HFT helps tighten spreads for smaller investors, and also itself benefits from the tighter spreads. But, to the extent that you believe the argument that HFT is essentially front-running, then HFT gets the tight spreads and better pricing.
    - tptacek 8y ago
      People believe all sorts of weird things, but the actual offense of front-running involves an agency relation: it occurs when you work with a broker/dealer to order your securities, and upon receiving your order, they trade for their own account ahead of yours. Market makers aren't agents of traders.
      - unclebucknasty 8y ago
        >the actual offense of front-running... Sure. That's why I wrote "essentially" front-running. Perhaps I should have written "effectively" to better clarify? In any case, I am referring less to the tort and more to the common complaint that people have about HFT: WRT how it disadvantages small investors. >People believe all sorts of weird things Indeed. But, I don't believe that to be an esoteric complaint. In fact, it seems to be one of the chief complaints where HFT is concerned.
        tptacek 8y ago
        I don't know if "esoteric" is the word. You're saying, lots of people seem to believe that the advantage fast electronic market making has over "conventional" trading is a form of front-running. That is true. But: it is not. Lots of people also believe that high-end market research (for instance, targeted research and maybe even electronic surveillance about how many widgets a company has sold) is a form of insider trading. But: it is not, even though lots of people say that, and for the same reason. In both cases, people believe there is something shady about people going to extraordinary lengths to obtain a trading advantage. And, in both cases, not only is the market resilient to those efforts to gain advantage, but the markets are theoretically improved by them. The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price for something, and to make it efficient for people to buy and sell at that price.
        unclebucknasty 8y ago
        I am aware that people believing a thing doesn't make it true. I am also aware of the arguments in favor of HFT. As you stated, the oft-made claim that the market is improved is theoretical as well; hence, is also a product of "belief". It's not a settled question. [0] >The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price Yes. [0] https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp https://www.investopedia.com/ask/answers/09/high-frequency-t...

physguy1123 8y ago

Manning rule dictates that retail orders held by a market maker must be filled before any other orders (or equally that fills must be given to the retail order), brokers don't look kindly on firms that reject customer orders with any regularity, and anyways retail flow on a volatile+wide spread symbol are loved by market makers.

qeternity 8y ago
This. Even in markets with last look, you will lose your flow if you dick about too much.
- physguy1123 8y ago
  I know of certain firms that will never reject retail orders unless they're truly invalid and will just fill at a loss to keep their flow.

qeternity 8y ago

Yeah and the old DMM's used to stub quote when things got rough. Same shit, different day. Under most environments, HFT has been a net positive particularly in the single name options market. Pretty much every name out there is quoted with decent depth because an algo can now quote a few vols either side and make decent coin given that it costs nothing to stay laid up these days.